Union Pacific Corp Earnings - Q4 2025 Analysis & Highlights
Union Pacific Corp.'s Q4 2025 earnings call highlighted a strong year with record financial and operational performance, despite a challenging macroeconomic environment and weather events. The company reported significant growth in net income and EPS, driven by core pricing gains and operational efficiencies. Discussions also covered strategic capital allocation, competitive advantages, and a confident outlook for 2026, including the anticipated merger with Norfolk Southern.
Key Financial Results
2025 Full Year Net Income: Union Pacific reported a net income of $7.1 billion, up 6% from the previous year.
2025 Full Year Earnings Per Share (EPS): EPS reached $11.98, an 8% increase year-over-year.
2025 Full Year Freight Revenue (excluding fuel surcharge): Freight revenue grew 3% versus 2024 and set a best-ever full-year record.
Q4 2025 Operating Revenue: Operating revenue was $6.1 billion, a 1% decrease versus 2024.
Q4 2025 Freight Revenue: Freight revenue was $5.8 billion, a 1% decline on 4% lower volume.
Q4 2025 Fuel Surcharge Revenue: Fuel surcharge revenue was $603 million, an increase of $15 million due to higher year-over-year fuel prices.
Q4 2025 Operating Income: Operating income declined 5% to $2.4 billion compared to Q4 2024.
Q4 2025 Reported Net Income: Reported net income totaled $1.8 billion, a fourth-quarter record.
Q4 2025 Earnings Per Share (EPS): EPS was $3.11.
Q4 2025 Adjusted Earnings Per Share (EPS): Adjusted EPS totaled $2.86.
2025 Full Year Adjusted Operating Ratio: The adjusted operating ratio improved 60 basis points to 59.3% versus 2024's result.
Q4 2025 Adjusted Operating Ratio: The adjusted operating ratio came in at 60%.
Annual Operating Expenses: Annual operating expenses, after adjusting for merger costs and other one-timers, were roughly flat year-over-year.
Workforce Productivity: The company utilized 3% fewer employees to move 1% more volume, setting a best-ever full-year record.
Other Income: Other income grew, partly from industrial park land sales.
Business Segment Results
Bulk Segment Revenue (Q4): Revenue was up 3% compared to last year on a 3% increase in volume.
Bulk Segment Performance: Strength in coal was driven by sustained demand and favorable natural gas pricing. Grain volumes were impacted by lower domestic demand and reduced soybean exports to China, partially offset by business development wins in Mexico. Grain product growth in renewable fuels was tempered by uncertainty around the renewable fuel tax credit. Food and beverage volumes remained pressured by softness in Mexico beer shipments. Fertilizer and sulfur finished strong due to increased phosphate shipments and higher sulfur demand from the mining industry.
Industrial Segment Revenue (Q4): Revenue was up 1% for the quarter on a 1% increase in volume.
Industrial Segment Performance: Demand and business wins increased in petrochemicals and construction shipments, partially offset by decreased volume in forest and petroleum markets.
Premium Segment Revenue (Q4): Revenue declined 6% on a 10% increase in volume and a 5% increase in average revenue per car.
Premium Segment Performance: Intermodal volumes were challenged by lower west coast imports and customer shifts. 2025 was the best-ever year for domestic intermodal, which also delivered a record-breaking quarter. Automotive volumes declined due to reduced OEM production, softer consumer demand, and ongoing quality holds.
Capital Allocation
Cash from Operations (2025 Full Year): Totaled $9.3 billion, roughly flat to 2024.
Cash Returned to Shareholders (2025): Grew 25% versus 2024, with $5.9 billion returned through dividends and share repurchases.
Adjusted Debt to EBITDA Ratio: Finished the year at 2.7 times.
2026 Capital Spending Target: Roughly $3.3 billion.
Debt Payments (2026): Prioritizing paying off $1.5 billion of long-term debt due in the first half of the year.
Share Repurchases: Share repurchases have been paused.
Industry Trends and Dynamics
Rail Inflation: Expected to be slightly over 4% in 2026.
Competitive and Global Market Environment: Impacted quarterly pricing and mix, particularly in agricultural.
Natural Gas Pricing: Expected to remain favorable in the near term, supporting coal's potential.
Renewable Fuels Policy: Expected to further support growth in grain products as it becomes clearer.
International Intermodal Volumes: Expected to remain soft in the near term.
Domestic Intermodal: Continued opportunity and growth from over-the-road conversions.
Competitive Landscape
Outperforming Markets: The company is committed to outperforming the markets through business development efforts.
Service Product Differentiation: Union Pacific's service product continues to differentiate it in the market.
Merger with Norfolk Southern: The merger is expected to enhance competition, move goods faster, and remove trucks from highways.
Competition with Other Railroads: The merger will put pressure on other railroads to compete.
Open Access/Reciprocal Switching: Management is supportive of optionality for customers and is not afraid to compete, provided it's fair and improves the customer experience.
Rail vs. Truck Competition: Rail is still more price competitive than truck. The true competition for railroads is trucks and vessels.
Macroeconomic Environment
S&P Global's January Outlook: Points to a softer environment for 2026.
Economic Estimates Deterioration: S&P Global's 2026 economic estimates in key areas such as industrial production, housing starts, and auto sales have deteriorated.
Industrial Production: Forecasted to be flat.
Housing Starts: Expected to decline by more than 2%.
Softening Vehicle Sales: Will pressure automotive volumes.
Weather Event Impact: A significant weather event impacted a vast majority of the United States, particularly the southern region. The company expects to be 70% recovered in the Texas and Louisiana-Arkansas area.
Growth Opportunities and Strategies
Business Development Pipeline: The company has a strong business development pipeline.
Leveraging Service Products: Focused on converting opportunities through strong customer relationships, commercial intensity, and consistent execution.
Investments in Gulf Coast Franchise: Expects petrochemicals markets to remain strong due to investments in the Gulf Coast franchise.
Targeted Capacity Projects: Investing in projects like siding construction and extension in the Pacific Northwest and along the Sunset Route, and terminal investments in Houston and the Gulf Coast region.
Intermodal Investments: Planning additional investments at Inland Empire and Phoenix to increase capacity and support growth.
Merger with Norfolk Southern: Targeting closing in the first half of 2027. The merger is expected to provide $2 billion of targeted net revenue gains.
Financial Guidance and Outlook
2026 Earnings Outlook: In the mid-single digit range.
2026 Capital Improvements: Planning $3.3 billion.
Operating Ratio (2026): Fully expects to improve its operating ratio versus 2025 and remain the industry leader.
Return on Invested Capital (ROIC): Expects to remain the industry leader.
Dividend Increases: Will continue to deliver value to shareholders with consistent annual dividend increases.
Long-Term EPS Growth Target: Committed to attaining a three-year CAGR of high-single to low-double digit EPS growth through 2027.
Price vs. Inflation (2026): Price may not be a driver of improving margins in 2026, but price dollars on an absolute basis will exceed inflation dollars.
Compensation per Employee (2026): Expected to be up around 4% to 5%, including offsetting efforts.
